Woolies, Coles hit the heights

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Woolworths shares shot to a record high above $15 as investors
speculated that a capital return or special dividend might not be
delayed by its recent $1.32 billion takeover of Australian Leisure
& Hospitality.

The shares touched a high of $15.17 yesterday before finishing
28c above the previous close at $15.09, marking an extraordinary 30
per cent gain over three months for the retailer.

"They're up after the annual general meeting and positive
commentary on Friday," said Macquarie Equities client adviser David
Halliday.

Buoyant conditions in the retail sector did their bit to pull
the shares higher. Rival Coles Myer also hit a record, rising 14c
to $10.06.

"It's certainly a day of the retailers today - they're
attracting plenty of attention from the market," Mr Halliday
said.

"Everything is in line for them - strong consumer confidence,
low interest rates and, as an added bonus, we're heading into
Christmas and that's always a strong trading period."

On Friday Woolworths told investors that it planned to restore
its balance sheet after the ALH takeover by getting its dividend
reinvestment plan fully underwritten.

Last year it doled out $463 million in dividends, or 45c a
share, but international credit rating agency Standard & Poor's
believes Woolworths will raise as much as $1 billion by 2006-07 by
scrapping participating limits on its dividend reinvestment
plan.

Woolworths chairman James Strong told the annual meeting last
week that for the next four dividend payments, the retailer would
scrap the participation limit on its dividend reinvestment program
so shareholders could invest all their payments in new stock at a
2.5 per cent discount.

That raised investors' hopes that Woolworths' capital management
plans would still go ahead at some stage in the next two years.

Analysts have previously speculated that Woolworths could return
as much as $1.5 billion - or about 10 per cent of its current
market capitalisation - over the next three years, most likely
through a combined special dividend and capital return.

However, when it was forced to pay $3.76 a share for ALH instead
of the $2.75 it originally offered, investors feared the extra debt
would take Woolworths beyond its target gearing levels and hamper
plans for a capital return.

S&P yesterday fixed Woolworths' long-term credit rating at
A- and its short-term rating at A2 after more than four months on
credit watch.

Its outlook remains "negative", indicating the next move may be
a downgrade.